WASHINGTON Senators criticize SEC in mutual-fund probe

The SEC was too late in responding to mutual fund abuses, senators say.
WASHINGTON (AP) -- Senators sharply questioned the response of federal regulators to purported widespread trading abuses within the mutual fund industry and among brokers that siphon money from ordinary investors.
Sen. Susan Collins, R-Maine, said she found it shocking that the trading practices, "which benefit a select group of individuals at the expense of the vast majority of mutual fund investors, continue."
"I question why the Securities and Exchange Commission ... has failed to detect these practices, to impose appropriate restrictions on them or to penalize those who appear to be misusing investors' money," Collins, chairwoman of the Senate Governmental Affairs Committee, said at a subcommittee hearing Monday.
The SEC began a mutual fund investigation in early September, and dozens of firms have been subpoenaed, including Fidelity Investments, Janus Capital Group, Morgan Stanley and Vanguard Group. Several investment companies, including Janus and Bank of America, have pledged to make restitution to mutual fund investors who lost money through alleged improper trading.
'Far too late'
But Sen. Joseph Lieberman, D-Conn., wrote to SEC Chairman William Donaldson that the agency "was far too late to the table in addressing these problems." Lieberman, a candidate for the Democratic presidential nomination, requested detailed information on the SEC's response and plans.
Donaldson, speaking to reporters in Connecticut, said the SEC was "trying to do the best job it can to add new resources and set its priorities correctly. I don't think it is very constructive to take pot shots at the SEC."
A House Financial Services panel was holding a hearing today on the debacle, which has tarnished the reputation of mutual funds, traditionally viewed as a safe, conservative investment.
SEC officials told the Senate hearing Monday that fundamental changes were needed in the way the $7 trillion mutual fund industry operates and governs itself. That's in addition to stiff punishment of wrongdoers, they said.